The Real Economy Tells The Story

This article posted by Down Jones Newswires probably sums it all up after last night's (another) Wall Street plunge and the latest confirmation that Singapore has entered into recession. Here's an extract of the article:

"The financial markets are sucking the oxygen from news headlines right now, but it's worth heeding an economic warning that has just come out of Singapore.

The island state is, like many others, heavily reliant on exports to support the economy, especially things like biotechnology and technology. It is also increasingly trying to be a financial services economy, a regional hub for key banks and brokerages.

Anyone living in Singapore would tell you that things haven't changed measurably. Restaurants are still busy, shops full and taxis impossible to find.

But it's clear that it may not stay this way. The recessionary data show that GDP fell 6.3% on the quarter, compared to a Dow Jones Newswires poll forecast for a 0.3% rise; GDP was down 0.5% on the year, versus a 0.8% rise expected.

Manufacturing output slumped 11.5% on the year; services output was 6.1% higher and construction output added 7.8%, though growth in both these sectors is slowing.

The authorities cut their 2008 growth forecast to 3%, from the prior 4%-5%, after the data were released, while the Monetary Authority of Singapore loosened monetary policy.

We've already had warnings from other parts of Asia. This week, data showed Taiwan exports fell 1.6% in September, the first decline since February 2007 on a fall in exports to China, Southeast Asia and the U.S.

That was a sharp turnaround from August's 18.40% export growth.

Readings on manufacturing meanwhile, via things like PMI data, are showing some weakness - not just in Asia, but in Europe, another key market for exporters.

And the recent monetary policy easing by China - along with other stimulatory measures - show Beijing is growing more concerned about the outlook for growth, even if the economy there is in no risk of falling in a hole.

This week we also had news that customers of iron ore from Australia's Mount Gibson Iron had asked the company to delay shipments in the fiscal second quarter ending Dec. 31.

Analysts called that an ominous signal that falling steel prices and growing iron ore stockpiles in China were set to impact miners.

Last week this column wrote about several economic canaries in the coal mine, including a drop in the Baltic Dry Index of shipping rates.

The Singapore data are enough example of that. The canaries are pretty much slumped at the bottom of their cage right now and gasping for breath - the question is if anyone will notice them amid the panic in the markets.

Of course the financial crisis is itself feeding into economic worries with investors, some of them sitting on major losses in pension and other retirement funds, knuckling down and cutting spending on discretionary items.

For policy makers that makes it ever more important to stop the rot in markets. So far there's been no silver bullet, as even the large, coordinated interest rate cuts made this week by many central banks failed to calm things.

Now there's the chance of even bigger-bang efforts from Friday's meeting of finance ministers and central bankers from the Group of Seven industrialized nations.

There's talk, for example, of officials agreeing to guarantee all interbank lending.

That's an extreme move but one, in the current climate, which may be needed to get liquidity pumping and markets back on their feet.

The downbeat signals coming now from various economies suggest officials can't afford to let the market rout continue, or the chances of a global recession will mount.

They've been deploying bazookas. Now they need to carpet bomb."

Above article is written by Rosalind Mathieson, Asia-Pacific Managing Editor for Market News at Dow Jones Newswires.